Fisher House Foundation, Inc.

Transcription

1 Audited Financial Statements Years Ended December 31, 2016 and 2015 The report accompanying these financial statements was issued by BDO USA, LLP, a Delaware limited liability partnership and the U.S. member of BDO International Limited, a UK company limited by guarantee.

2 Audited Financial Statements Years Ended December 31, 2016 and 2015

3 Contents Independent Auditor s Report 1-2 Financial Statements Statements of Financial Position 3 Statements of Activities and Change in Net Assets 4 Statements of Cash Flows 5 Statements of Functional Expenses

4 Tel: Fax: Greensboro Drive Suite 800 McLean, VA Independent Auditor s Report Board of Trustees Fisher House Foundation, Inc. Rockville, MD Report on the Financial Statements We have audited the accompanying financial statements of Fisher House Foundation, Inc. (the Foundation), which comprise the statements of financial position as of December 31, 2016 and 2015, and the related statements of activities and change in net assets, cash flows and functional expenses, for the years then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. 1

5 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Fisher House Foundation, Inc. as of December 31, 2016 and 2015, and the change in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. McLean, Virginia May 15,

6 Financial Statements

7 Statements of Financial Position December 31, Assets Cash and cash equivalents $ 53,733,205 $ 38,065,641 Certificates of deposit 25,255,773 20,099,417 Investments - 765,779 Pledges and contributions receivable, net 2,727,722 7,019,931 Note receivable - related party - 3,000,000 Due from related party - 212,246 Construction-in-progress 7,945,180 27,841,508 Split-interest agreement receivable 470, ,594 Prepaid expenses and other assets 112, ,409 Property and equipment, net 18,684 26,915 Total assets $ 90,263,317 $ 97,694,440 Liabilities and Net Assets Liabilities Accounts payable and accrued expenses 2,136,845 4,770,630 Retainage payable 539, ,603 Deferred rent 20,543 34,852 Refundable advances 7,104,479 2,751,815 Deferred revenue 71,960 60,200 Total liabilities 9,873,264 8,530,100 Net assets Unrestricted net assets 62,590,722 70,523,774 Temporarily restricted net assets 17,049,331 17,890,566 Permanently restricted net assets 750, ,000 Total net assets 80,390,053 89,164,340 Total liabilities and net assets $ 90,263,317 $ 97,694,440 See accompanying notes to the financial statements. 3

8 Statements of Activities and Change in Net Assets Years Ended December 31, Temporarily Permanently Temporarily Permanently Unrestricted Restricted Restricted Total Unrestricted Restricted Restricted Total Changes in net assets: Revenue Grants and contributions $ 33,497,381 $ 14,433,662 $ - $ 47,931,043 $ 26,581,388 $ 23,004,593 $ - $ 49,585,981 Special events 2,687, ,480-3,336,403 2,546, ,546,688 Donated goods 11,162, ,162,914 13,985, ,985,025 Net assets released from restrictions 15,634,098 (15,634,098) ,191,002 (20,191,002) - - Total revenue 62,982,316 (551,956) - 62,430,360 63,304,103 2,813,591-66,117,694 Expenses Program expenses 66,001, ,001,514 45,252, ,252,112 Management and general 2,683, ,683,494 2,178, ,178,998 Fundraising 2,881, ,881,656 3,882, ,882,000 Total expenses 71,566, ,566,664 51,313, ,313,110 Change in net assets before non-operating items (8,584,348) (551,956) - (9,136,304) 11,990,993 2,813,591-14,804,584 Non-operating items Investment income (expense) 340,813 21, ,017 (43,664) 21,832 - (21,832) Total non-operating items 340,813 21, ,017 (43,664) 21,832 - (21,832) Change in net assets (8,243,535) (530,752) - (8,774,287) 11,947,329 2,835,423-14,782,752 Net assets at the beginning of the year 70,834,257 17,580, ,000 89,164,340 58,576,445 15,055, ,000 74,381,588 Net assets at the end of the year $ 62,590,722 $ 17,049,331 $ 750,000 $ 80,390,053 $ 70,523,774 $ 17,890,566 $ 750,000 $ 89,164,340 See accompanying notes to the financial statements. 4

9 Statements of Cash Flows Years Ended December 31, Cash flows from operating activities: Change in net assets $ (8,774,287) $ 14,782,752 Adjustments to reconcile change in net assets to net cash and cash equivalents provided by operating activities: Depreciation and amortization 14,207 15,490 Change in value of split-interest agreement receivable (10,058) (10,798) Realized and unrealized (gains) losses on investments (3,675) 55,375 Change in allowance for doubtful pledges (474,000) (312,000) Donated investments received (732,587) (615,923) Change in deferred rent (14,309) (8,257) Cost of houses donated 34,731,710 16,321,810 Changes in operating assets and liabilities: Due from related party 212,246 (212,246) Pledges and contributions receivable 4,766,209 (2,011,037) Split-interest agreement receivable 48,145 48,145 Prepaid expenses and other current assets 42,163 58,123 Accounts payable and accrued expenses (2,633,785) 2,195,883 Retainage payable (373,166) 767,204 Refundable advances 4,352,664 - Deferred revenue 11,760 (55,020) Total adjustments 39,937,524 16,236,749 Net cash provided by operating activities 31,163,237 31,019,501 Cash flows from investing activities: Additions to construction-in-progress (14,835,382) (37,534,161) Purchases of property and equipment (5,976) (2,800) Purchases of investments (1,233,256) (1,578,724) Proceeds from sales of investments 2,008, ,853 Purchase of certificates of deposits (5,156,356) (20,099,417) Proceeds received from repayment of note receivable - 3,000,000 Proceeds received from repayment of related-party note receivable 3,000,000 - Issuance of related-party note receivable - (3,000,000) Proceeds from sales of donated securities 727, ,640 Net cash used in investing activities (15,495,673) (57,841,609) Net increase (decrease) in cash and cash equivalents 15,667,564 (26,822,108) Cash and cash equivalents at the beginning of the year 38,065,641 64,887,749 Cash and cash equivalents at the end of the year $ 53,733,205 $ 38,065,641 See accompanying notes to the financial statements. 5

10 Statement of Functional Expenses 2016 Management Year Ended December 31, Program and General Fundraising Total Grants and awards $ 58,431,966 $ - $ - $ 58,431,966 Public service announcements - donated 3,784,676-1,273,039 5,057,715 Payroll 841,491 1,090, ,074 2,381,974 Consulting fees 522,960 95, , ,080 Event costs 311, , ,996 Education and promotion 276,493 57, , ,302 Payroll taxes and employee benefits 201, , , ,626 Office expenses 176, ,000 95, ,352 Director's compensation 340,619 97,320 48, ,599 Travel 334,169 57,866 38, ,612 Bad debt expense - 320, ,890 Printing and publications 230,201 10,283 23, ,347 Bank and credit card fees - 240, ,007 Rent expense 76, ,124 41, ,661 Dedication expense 188, ,866 Conferences 160, ,728 Postage 34,193 17,096 17,096 68,385 Professional fees 66, ,497 Telephone 16,624 21,848 9,024 47,496 Miscellaneous - 29,217-29,217 Insurance 6,418 5,649 3,074 15,141 Depreciation and amortization - 14,207-14,207 Total expenses $ 66,001,514 $ 2,683,494 $ 2,881,656 $ 71,566,664 See accompanying notes to the financial statements. 6

11 Statement of Functional Expenses 2015 Management Year Ended December 31, Program and General Fundraising Total Grants and awards $ 39,361,683 $ - $ - $ 39,361,683 Public service announcements - donated 2,153,200-2,153,200 4,306,400 Other payroll 741, , ,829 1,985,818 Event costs 643, ,646 1,287,292 Consulting fees 380,462 36, , ,368 Office expenses 235, ,609 95, ,148 Payroll taxes and employee benefits 231, ,030 95, ,292 Director's compensation 328,966 93,990 46, ,951 Education and promotion 213,108 54, , ,048 Bank and credit card fees - 320, ,948 Travel 226,807 39,256 26, ,233 Printing and publications 246,532 12,250 25, ,133 Allowance for doubtful pledges - 234, ,985 Rent expense 96,972 81,597 39, ,741 Conferences 151, ,123 Professional fees 133, ,129 Postage 29,013 14,506 14,506 58,025 Dedication expense 51, ,346 Telephone 22,066 18,567 8,913 49,546 Depreciation - 15,490-15,490 Miscellaneous - 18,319-18,319 Insurance 5,822 3,840 2,430 12,092 Total expenses $ 45,252,112 $ 2,178,998 $ 3,882,000 $ 51,313,110 See accompanying notes to the financial statements. 7

12 1. The Organization and Summary of Significant Accounting Policies Fisher House Foundation, Inc. (the Foundation) is a not-for-profit Foundation incorporated under the laws of the State of Delaware on March 31, 1993, as amended on October 27, Fisher Houses are facilities constructed for the purpose of providing temporary lodging for members of the armed services and their families receiving care in military and veterans hospitals. The Foundation was formed for, and program services consist of, constructing and donating Fisher Houses to various branches of the U.S. armed services and the Department of Veterans Affairs (Donees), providing gratuitous guidance and supervisory, as well as monetary, assistance in connection with the Donees management and operation of the Fisher Houses. The Foundation also funds the scholarship program, and provides military personnel and their families with free air travel and hotel rooms. In addition, the Foundation's objectives are: (a) (b) (c) To promote and enhance the public perception and image of the Fisher Houses and the U.S. armed forces, and to provide financial assistance to current members of the U.S. armed services, veterans and their families. To promote, encourage and provide support to enhance the communication and cooperation among the military and federal, state and local governments, and private foundations involved or associated with Fisher Houses through publications and support programs. To support and encourage programs designed to maintain the high-quality standards of care and management associated with Fisher Houses. Basis of accounting The financial statements of the Foundation have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. Use of estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Such estimates also affect the reported amounts of revenues and expenses during the reporting year. Actual results may differ from estimates under different assumptions or conditions. Revenue recognition Donated Goods, Services and Media Time Donated goods consist of contributed merchandise, phone cards with stored value and gift certificates, and are reported at their fair value as of the date of donation. Donated air miles are not valued until they are redeemed by the Foundation and used in the Hero Miles Programs. The Foundation is part of a program (Hero Miles Program) to provide servicemen/women and their families who meet certain criteria free round-trip tickets using donated frequent flyer miles. During 2016 and 2015, the Foundation provided tickets totaling 8

13 5,294 and 5,601, respectively, which were valued at approximately $5,415,000 and $9,130,000, respectively. These amounts are included in donated goods, services and media time and charged to program services for the years ended December 31, 2016 and Donated hotel rewards points are not valued until they are redeemed by the Foundation and used in the Hotels for Heroes Programs. The Foundation is part of a program (Hotels for Heroes Program) to provide qualified service members, veterans and their families free hotel rooms, using donated hotel reward points, when rooms at a Fisher House are not available. During 2016 and 2015, the Foundation provided nights of lodging totaling 3,793 and 2,068, respectively, which were valued at approximately $358,000 and $310,000, respectively. These amounts are included in donated goods, services and media time and charged to program services for the years ended December 31, 2016 and Magazine printing and photography services donated as part of program services, fundraising or management and general expenses are recorded in the accompanying financial statements at their fair value on date of receipt to the extent that such amounts can be reasonably estimated. During 2016 and 2015, the Foundation received $71,531 and $63,985, respectively, in such services. These amounts are included in donated goods, services and media time, and were charged to program services for the years ended December 31, 2016 and Donated media time used for public service announcements is reported at its fair value as estimated by management as of the date of donation. During 2016 and 2015, the Foundation received donated media time which was valued at $5,023,275 and $4,323,895, respectively. These amounts are included in donated goods, services and media time, and were charged in equal amounts to program services and fund raising for the years ended December 31, 2016 and Contribution revenue Contributions, including unconditional promises to give, are recognized in the period received. Contributions received are considered to be available for use unless specifically restricted by the donor. Amounts received that are designated for a future period, or are restricted by the donor for specific purposes are reported as temporarily restricted or permanently restricted support that increases those net asset classes. Unconditional promises to give, which do not state a due date, are presumed to be time-restricted by the donor until received and are reported as temporarily restricted net assets. Wills are recorded as bequest revenue when the probate courts declare the wills valid and the proceeds are measurable. Irrevocable split-interest agreements, including charitable remainder trusts, charitable lead trusts and perpetual trusts, are recorded as revenue when the trust agreements become irrevocable. Contributions are recorded at fair value, which is net of estimated uncollectible amounts. The Foundation uses the allowance method to determine uncollectible unconditional pledges receivable. The allowance is based on experience as well as management s analysis of specific pledges made, including such factors as prior collection history, type of contribution, and nature of fundraising activity. Contributions, including multi-year pledges and split interest agreements, to be received after one year, are recorded at the present value of the estimated future cash flows. Subsequent changes in this discount resulting from the passage of time are accounted for as contributions in subsequent years. 9

14 Grant revenue The Foundation receives grant funding from federal agencies and private foundations. Revenue is recognized only to the extent of expenditures under the terms of the grants. Grant awards not yet received are accrued to the extent unreimbursed expenses have been incurred for the purposes specified by an approved grant. Excess expenses incurred are borne by the Foundation. Unexpended funds are returned to the grantors if required by the grant agreement. Some grant payments are received in advance of related expenditures. These amounts are reflected in the accompanying statements of financial position as refundable advances. Special events revenue Registration and fees are recognized upon completion of the related event. Some payments and fees are received in advance of the related event. These amounts are reflected in the accompanying statements of financial position as deferred revenue. Cash equivalents The Foundation considers all highly-liquid instruments with original maturities of three months or less to be cash equivalents. Certificates of deposits The certificates of deposit are recorded at cost, which approximate fair value. Pledges and contributions receivable Pledges and contributions receivable are recorded at face value, and then discounted to present value using interest rates appropriate to the estimated length of time for realization. All pledges and contributions receivable are reviewed annually for future collectability. Management determines the allowance for doubtful receivables by regularly evaluating individual receivables and considering the donor s financial condition and current economic conditions. Notes receivable Notes receivable are stated at the amount of unpaid principal, adjusted for an allowance for loan losses, when deemed appropriate. The Foundation records an allowance when management determines that collectability is not probable. Management s estimate is based on review of the loans comprising the notes receivable balance and considers known and inherent risks, the estimated fair value of the underlying collateral, and current economic conditions. Construction-in-progress Costs of construction of Fisher Houses to be donated are capitalized as incurred. All costs incurred in connection with the construction of a Fisher House are expensed when the house is donated. 10

15 Split-Interest agreement The Foundation is one of the beneficiaries of a certain Charitable Lead Annuity Trust (the "Trust"). Under this agreement, the Foundation recorded a temporarily restricted contribution at the present value of the estimated future benefits to be received. Subsequent changes in fair value are recorded as changes in value of the agreement in the temporarily restricted net asset class. Distributions from the Trust are reflected as reductions in the assets temporarily restricted in use and reclassifications from temporarily restricted to unrestricted net assets. Property and equipment The Foundation s policy is to capitalize property and equipment in excess of $1,000. Property and equipment is stated at cost. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment is retired, or otherwise disposed of, the cost and accumulated depreciation and amortization is removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Depreciation and amortization of property and equipment is computed using the straight-line method over the estimated useful lives of the assets of three to five years. Amortization of leasehold improvements is computed using the straight-line method over the lesser of the estimated useful lives of the underlying assets or the term of the related lease. Donated securities Donated securities are reported at their fair value as of the date of donation. Sales of such securities are reflected on a trade-date basis. Valuation of long-lived assets The Foundation reviews the valuation of its long-lived assets for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the long-lived assets is measured by a comparison of the carrying amount of the assets to future undiscounted net cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. No indicators of impairment were identified as of December 31, 2016 and Net assets The Foundation classifies its net assets into the three categories: unrestricted, temporarily restricted, and permanently restricted. Unrestricted net assets - Unrestricted net assets are those net assets that are not subject to donor-imposed stipulations. Temporarily restricted net assets - Temporarily restricted net assets generally result from net contributions and other inflows of assets whose use by the Foundation is limited by donor-imposed stipulations that either expire by passage of time or can be fulfilled and the restriction removed by actions of the Foundation pursuant to those stipulations. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily 11

16 restricted net assets are released to unrestricted net assets and reported in the accompanying statements of activities as net assets released from restrictions. Permanently restricted net assets - Permanently restricted net assets generally result from contributions and other inflows of assets whose use by the Foundation is limited by donor-imposed stipulations that neither expire by passage of time nor can be fulfilled or otherwise removed by the Foundation. Generally, the donors of these assets permit the Foundation to use the income earned on related investments for general or specific purposes. The Foundation s donor-restricted endowment is subject to the authoritative guidance issued by the Financial Accounting Standards Board (the FASB) on net asset classifications of endowment funds, such that earnings on donorrestricted endowment are reflected as temporarily restricted net assets until such amounts are appropriated for expenditure. Functional allocation of expenses The costs of providing the Foundation s programs and other activities have been summarized on a functional basis in the accompanying statements of activities and change in net assets. Accordingly, certain costs have been allocated among the activities benefited. Income taxes The Foundation is exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code (the IRC). No provision for income taxes were recorded during the years ended December 31, 2016 and 2015 since the Foundation had no significant unrelated business income. The Foundation is not a private Foundation pursuant to section 509(a)(1) of the IRC. In accordance with authoritative guidance issued by the Financial Accounting Standards Board (the FASB), the Foundation recognizes tax liabilities when, despite management s belief that tax return positions are supportable, the Foundation believes that certain positions may not be fully sustained upon review by tax authorities. Benefits from tax positions are measured at the largest amount of benefit that is greater than 50% likely of being realized upon settlement. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences impact income tax expense in the period in which such determination is made. Interest and penalties, if any, related to accrued liabilities for potential tax assessments are included in income tax expense. With few exceptions, the Foundation is no longer subject to income tax examinations by the U.S. federal, state or local tax authorities for years ended December 31, 2012 and prior. Management has evaluated the Foundation s tax positions and has concluded that the Foundation has taken no material uncertain tax positions that require adjustment to the financial statements to comply with the provisions of this guidance. Financial instruments The fair value of the Foundation s short-term financial instruments, including cash and cash equivalents, accounts payable and accrued expenses approximate their carrying amounts due to the short maturity of these instruments. 12

17 Concentrations of credit risk The Foundation s assets that are exposed to credit risk consist primarily of cash and cash equivalents, investments, pledges and contributions receivable, notes receivable, and splitinterest agreement receivable. Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits. The Foundation has never experienced any losses related to these balances. Amounts on deposit in excess of federally insured limits at December 31, 2016 approximate $51 million. Investment securities are exposed to various risks such as interest rate, market, and credit risks. The Foundation s pledges, splitinterest agreement receivable, contributions, and notes receivable balances consist primarily of amounts due from individuals and corporations. The Foundation maintains reserves for potential credit losses when deemed necessary and historically such losses have been within management s expectations. Recently adopted accounting pronouncements In August 2014, the FASB issued guidance related to defining management s responsibility to evaluate whether there is substantial doubt about an organization s ability to continue as a going concern and to provide related footnote disclosures. This guidance is effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, Early application is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. This update did not have an impact on the financial statements upon adoption. Recent accounting pronouncements not yet adopted In May 2014, the FASB issued ASU , Revenue from Contracts with Customers (Topic 606). This update supersedes previously issued guidance on revenue recognition and will apply to virtually all industries. The core principle of this new guidance is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled. To accomplish this objective, the standard requires five basic steps: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies the performance obligation. The new standard will be effective for nonpublic entities for annual reporting periods beginning after December 15, The Foundation is evaluating the effect that adoption of this new standard will have on the Foundation s financial statements. In February 2016, the FASB issued ASU , Leases (Topic 842). This standard relates to leasing for both lessees and lessors. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients 13

18 available. The Foundation is evaluating the effect that adoption of this new standard will have on the Foundation s financial statements. In August 2016, FASB issued ASU , Not-for-Profit Entities (Topic 958) and Health Care Entities (Topic 954) Presentation of Financial Statements of Not-for-Profit Entities. The ASU amends the current reporting model for nonprofit organizations and enhances their required disclosures. The major changes include: (a) requiring the presentation of only two classes of net assets now entitled net assets without donor restrictions and net assets with donor restrictions, (b) modifying the presentation of underwater endowment funds and related disclosures, (c) requiring the use of the placed in service approach to recognize the expirations of restrictions on gifts used to acquire or construct long-lived assets absent explicit donor stipulations otherwise, (d) requiring that all nonprofits present an analysis of expenses by function and nature in either the statement of activities, a separate statement, or in the notes and disclose a summary of the allocation methods used to allocate costs, (e) requiring the disclosure of quantitative and qualitative information regarding liquidity and availability of resources, (f) presenting investment return net of external and direct expenses, and (g) modifying other financial statement reporting requirements and disclosures intended to increase the usefulness of nonprofit financial statements. The ASU is effective for the Foundation s financial statements for fiscal years beginning after December 15, Early adoption is permitted. The provisions of the ASU must be applied on a retrospective basis for all years presented although certain optional practical expedients are available for periods prior to adoption. The Foundation is currently evaluating the impact of this ASU on its financial statements. 2. Pledges and Contributions Receivable Pledges and contributions receivable consist of the following at December 31: Due in less than one year $ 2,656,203 $ 5,906,597 Due in one to five years 71,519 1,587,334 2,727,722 7,493,931 Less: allowance for doubtful pledges - (474,000) 3. Note Receivable Related Party $ 2,727,722 $ 7,019,931 As of December 31, 2015, notes receivable related party consisted of a note receivable from a related party to the Foundation through common board members. The note receivable has initial face value of $3,000,000. The Foundation earned interest equal to the short-term applicable federal rate. The note and the related interest was paid on July 31,

19 4. Split-interest Agreement Receivable The Foundation is one of the beneficiaries of a certain Charitable Lead Annuity Trust that is controlled by a third-party trustee. Under the agreement, the Foundation receives fixed annual distributions from the trust through January These payments are guaranteed irrespective of market performance of the investments. Annual distributions under the terms of this agreement as of December 31, 2016 are as follows: Years ending December 31, 2017 $ 48, , , , ,145 Thereafter 286, ,159 Less: discount for present value (56,652) $ 470,507 The Foundation used a discount rate of 2.0% in determining the present value of the annual distributions to be collected at the time the Charitable Lead Annuity Trust was established. 5. Property and Equipment Property and equipment consists of the following at December 31: Furniture and fixtures $ 83,790 $ 83,790 Computer and other equipment 31,132 32,901 Leasehold improvements 30,600 30, , ,291 Less: accumulated depreciation and amortization (126,838) (120,376) $ 18,684 $ 26,915 Depreciation and amortization expense on property and equipment totaled $14,207 and $15,490 for the years ended December 31, 2016 and 2015, respectively. 15

20 6. Temporarily Restricted Net Assets Temporarily restricted net assets consist of the following at December 31: Purpose restrictions: Construction of Fisher Houses $ 10,772,306 $ 9,339,923 Support of Designated Fisher Houses 2,863,062 3,208,973 Scholarship Programs 2,843,455 3,950,702 Heroes Programs - 71,891 Time and purpose restrictions: Construction of Fisher Houses 100, ,000 Time restrictions 470, ,594 $ 17,049,331 $ 17,580,083 During the years ended December 31, 2016 and 2015, $15,634,098 and $20,191,002, respectively, of restricted funds were released, based on the Foundation's satisfaction of donor stipulations, as follows: Scholarship programs $ 2,387,784 2,267,000 Designated houses 3,093,053 1,284,385 Heroes programs 725,859 76,094 Construction of Fisher Houses 9,389,316 16,526,173 Time restrictions 38,086 37, Endowment $ 15,634,098 $ 20,191,002 The Foundation s endowment consists of a donor-restricted endowment fund. Net assets associated with endowment funds are classified and reported based on the existence or absence of donor-imposed restrictions. This endowment was established in 2008 with permanent donor restriction on the corpus of $750,000, with investment earnings on the fund to be used by the Foundation for the SFMC (Scholarship for Military Children) scholarship program. The Board of Trustees of the Foundation has interpreted UPMIFA as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the Foundation classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donor-restricted endowment fund that is not classified as permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the Foundation in a manner consistent with the standard of prudence prescribed by UPMIFA. In accordance with UPMIFA, the Foundation 16

21 considers the following factors in making a determination to appropriate or accumulate donorrestricted endowment funds: (1) The duration and preservation of the fund (2) The purposes of the Foundation and the donor-restricted endowment fund (3) General economic conditions (4) The possible effect of inflation and deflation (5) The expected total return from income and the appreciation of investments (6) Other resources of the Foundation (7) The investment policies of the Foundation As of December 31, 2016 and 2015, the Foundation s endowment had the following net asset composition: Temporarily Permanently Restricted Restricted Total Donor-restricted endowment fund $ - $ 750,000 $ 750,000 Total endowment funds $ - $ 750,000 $ 750,000 The following table presents the endowment-related balances and activities by net asset classification as of and for the years ended December 31, 2016 and 2015: Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, December 31, $ 151 $ 750,000 $ 750,151 Investment return Investment income 21,832 21,832 Net losses - (48,660) - (48,660) Total investment return - (26,828) - (26,828) Appropriations (17,043) (17,043) Reclass for underwater endowments (48,660) 48, Net losses (4,940) - (4,940) Endowment net assets, December 31, 2015 (48,660) - 750, ,340 Investment return Investment income - 21,204-21,204 Net gains 4,008 4,008 Total investment return - 25,212-25,212 17

22 Temporarily Permanently Unrestricted Restricted Restricted Total Appropriations - (4,942) (4,942) Reclass for underwater endowments 14,434 (14,434) - - Investment management fees (5,836) (5,836) Endowment net assets, December 31, 2016 (34,226) $ - $ 750,000 $ 715,774 From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor or UPMIFA requires the Foundation to retain as a fund of perpetual duration. In accordance with authoritative guidance issued by the FASB, deficiencies of this nature are reported in unrestricted net assets. At December 31, 2016 and 2015, the cumulative amount of deficiencies reported in unrestricted net assets was $34,226 and $48,660, respectively. 8. Fair Value Measurements Certain assets are recorded at fair value. Fair value is defined as the price that would be received to sell an asset between market participants in an orderly transaction on the measurement date. The market in which the reporting entity would sell the asset with the greatest volume and level of activity for the asset is known as the principal market. When no principal market exists, the most advantageous market is used. This is the market in which the reporting entity would sell the asset with the price that maximizes the amount that would be received or minimizes the amount that would be paid. Fair value is based on assumptions market participants would make in pricing the asset. Generally, fair value is based on observable quoted market prices or derived from observable market data when such market prices or data are available. When such prices or inputs are not available, the reporting entity should use valuation models. The Foundation s assets recorded at fair value are categorized based on the priority of the inputs used to measure fair value. Fair value measurement standards require an entity to maximize the use of observable inputs (such as quoted prices in active markets) and minimize the use of unobservable inputs (such as appraisals or other valuation techniques) to determine fair value. The inputs used in measuring fair value are categorized into three levels, as follows: Level 1 - Inputs that are based upon quoted prices for identical instruments traded in active markets. Level 2 - Inputs that are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar investments in markets that are not active, or models based on valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the investment. Level 3 - Inputs that are generally unobservable and typically reflect management s estimates of assumptions that market participants would use in pricing the asset. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques. 18

23 The following section describes the valuation methodologies the Foundation uses to measure its assets and liabilities at fair value. Investments Investments include money market funds, mutual funds and common stocks. In general, and where applicable, the Foundation uses quoted prices in active markets for identical assets to determine fair value. This pricing methodology applies to Level 1 investments. Fair Value on a Recurring Basis The Foundation did not hold investments as of December 31, Financial assets measured at fair value on a recurring basis as of December 31, 2015 are summarized below: As of December 31, 2015 Assets Measured At Fair Fair Value Hierarchy Level Description Value Level 1 Level 2 Level 3 Investments Money Market funds $ 61,306 $ 61,306 $ - $ - Common stocks Consumer goods 4,996 4, Healthcare industry 4,388 4, Finance industry ,974 9, Mutual funds Large blend 282, , Moderate allocation 108, , Intermediate term bond 89,528 89, Foreign large growth 71,309 71, Corporate bond 48,169 48, Energy limited partnership 36,328 36, High yield bond 34,796 34, Pacific/Asia Ex-Japan 23,116 23, Large value , , Total $ 765,779 $ 765,779 $ $ 19

24 9. Benefit Plan The Foundation maintains a defined contribution 401(k) profit sharing plan (the Plan) for all employees who are over the age of 21. Participants may make voluntary contributions up to the maximum amount allowable by law. The Foundation s contributions to the Plan are at the discretion of management and vest to the participants immediately. The Foundation recorded contributions to the Plan of $97,384 and $82,589 for the years ended December 31, 2016 and 2015, respectively. 10. Related Party Transactions For the years ended December 31, 2016 and 2015, certain officers and trustees made contributions to the Foundation totaling $54,575 and $56,773, respectively. Further, the affiliates of certain trustees made contributions of $51,810 and $287,000, for years ended December 31, 2016 and 2015, respectively. For the years ended December 31, 2016 and 2015, payments totaling $31,150 and $1,159, respectively, were made to The Henry M. Jackson Foundation, the president of which, John Lowe, is a member of the Board of Trustees of the Foundation. For the years ended December 31, 2016 and 2015, the Foundation compensated James Weiskopf, an officer of the Foundation, $66,669 and $78,065, respectively, for his services in connection with the scholarship program and consulting. Such amounts have been charged to expense as program services. Some of Foundation s board members serve on the Board of Directors of a non-profit organization (MASI). The Foundation paid for certain expenses on behalf of MASI. During the years ended December 31, 2016 and 2015, $0 and $212,246, respectively, is due from MASI to the Foundation for these expenses. These amounts are reflected as due from related party in the accompanying statements of financial position. During 2016, the Foundation awarded a grant totaling $8,600,000 to MASI. During 2015, the Foundation awarded a grant totaling $5,000,000 to MASI. This expense is included in program expenses in the accompanying statements of activities. Also, during 2015, the Foundation entered into a note receivable with MASI in amount $3,000,000 and this note was repaid in full in July 2016 (see Note 3). 11. Major Grantors and Donors For the year ended December 31, 2016, three donors/grantors accounted for 10% of the Foundation s revenue. For the year ended December 31, 2015, two donors/grantors accounted for 14% of the Foundation s revenue. 20

25 12. Commitments The Foundation leases office space under the terms of a non-cancelable operating lease that expires in December The Foundation is also responsible for certain operating expenses. As of December 31, 2016, the Foundation has future minimum lease payment required under this operating lease of $214,000 that is due in fiscal year The Foundation recognizes the total cost of its office lease ratably over the respective lease periods. The difference between rent paid and rent expense is reflected as deferred rent in the accompanying statements of financial position. Rent expense aggregated $217,661 and $217,741 for the years ended December 31, 2016 and 2015, respectively. 13. Subsequent Events The Foundation has evaluated its December 31, 2016 financial statements for subsequent events through May 15, 2017, the date the financial statements were available to be issued. The Foundation is not aware of any subsequent events that would require recognition or disclosure in the financial statements. 21